Presentation for the Session on "The International
System Perspective" of the March 8, 1996, BRIE Working Meeting on Globalization

Let me annoy Raymond Vernon by expressing a different take on the
difference beween 1913 and 1995, so let me start with the question of how
things today are different from things during the last flourishing of the
international economy, the pre-WWI Belle Epoque. Trade back then
was not confined to areas of informal empire--there is a literature in pre-WWI
Britain to which Jeffrey Williamson has the references on how in industry
by industry British producers decried their losses of export share to German
and American producers. My wheat-farming great grandparents in Illinois,
whose prices hinged on European demand for grain would have been astonished
to have been told that they were not part of an integrated economy.

So what's the difference? Are financial flows stronger and more important
today?

Net capital flows as shares of world product are surely smaller
than they used to be before WWI (although gross trading volumes
are higher).

Is trade stronger and more important?

Maybe: world trade as a share of world product is a bit larger (but
the net embodied factor content of trade as a share of world product appears
smaller, and the net embodied factor content is presumably what matters
most for trade's effect on, say, the unskilled workers' wages).

How about labor? Is international migration more important?

Certainly not: between 1850 and 1920 one in every ten people in the
world moved continents. Post-WWII, post-1973, or even post-1990
world population flows are a far smaller share of world populations than
in the old days.

So what is different? Why has "globalization" become such a powerful
banner in the past decade? One possibility: back before the Belle Epoque,
what you could transfer across national boundaries was limited--pretty much
limited to the commodity, or the security. As long as you
could pack it in a crate or an envelope, and send it across the sea (or
over the telegraph lines), you could transfer it. If not, not. Call this
"low bandwidth" trade. International transactions and linkages
that required more in the form of cross-border linkage were very hard to
accomplish.

And I think of Ford's early post-WWI attempts to transfer its assembly-line
productivity to Britain; of British and Japanese attempts to use Lancashire-manufactured
textile machinery to achieve high productivity in factories in India or
China; or of the frantic attempts of British investors--who had never imagined
how easily Jay Gould would be able to buy the courts of New York--to extract
bond coupons and dividends from the Erie Railroad that they "owned".

Today we have "high-bandwidth" trade and investment. The breadth
of cross-national links has vastly increased. Back then you could not exercise
corporate control across national borders. Now you can. Back then you could
not transfer forms of organization to achieve home-country productivity
in foreign production operations. Now you can. Back then you could not integrate
design and specification in one country with production in another. Now
you can.

There are counterforces: trans- or multi-national corporations are going
to be a good candidate for someone to blame. We are beginning to see denunciations
of "rootless cosmopolitans", of "Goldman-Sachsonomics",
that somehow seem to me reminiscent of the old-style European contrast between
good engineers and bad financiers. Where that will end up I do not know...

And this shift to "higher bandwidth" in international economic
links is still hard to see in its impact on the aggregate numbers--yet.
I was one of the subcommanders in a Bentsen Treasury Department guerilla
offensive against a Reich Labor Department--arguing that if you took a serious
look at the numbers, the gain in blue-collar construction jobs in
the 1980s as a result of foreign-financed investment in the U.S. was more
than the loss in blue-collar manufacturing jobs as a result of the
trade deficit. That the modal service export was not a computer program
written by a symbolic analyst in an office tower to program NC machine tools
oiled by someone in Malaysia, but was in travel and tourism--the modal service
export was someone making a bed for a Japanese tourist outside of Yellowstone.

In 1975 the average U.S. manufacturing import came from a country with a
wage level 59% of the U.S. In 1992 the average U.S. manufacturing import
came from a country with a wage level 73% of the U.S. In 1975 0.7% of U.S.
Gross National Expenditure was made up of non-oil imports from countries
with mfg. wage levels less than half that of the U.S. In 1992 this percentage
was not higher but lower--0.6%. (Think of it: Japan and Italy in 1975 were
economies that Harley Shaiken would have correctly classified as having
an enormous labor cost advantage vis-a-vis the U.S.)

But as I thought about this, it seemed to me that all we were saying was
not yet. That the vision found in, say, Bob Reich's Work of Nations--one
in which the division of labor becomes global at a very finely-grained level,
and God help those citizens of rich countries who find themselves among
the unskilled--was not yet a powerful force, at least as far as the
U.S. economy was concerned.

Think back to 1700, and note that then the "rich" countries had
perhaps twice the material standard of living of the "poor", and
that this relative gap has been widening since. By 1900 the industrialized
"rich" had perhaps six times the material standard of living of
the world's "poor" countries. And today? 20 times?

In the long run our descendants will probably not live in a world in which
relative international differences in material standards of living are as
large as today. And if by 2050 the gap between "rich" and "poor"
has shrunk back to a factor of 6, I pray that it will have been by levelling
up--by granting software programmers in Bangalore three-bedroom houses like
those in Los Gatos, and by giving auto workers in Hermosillos high enough
purchasing power to buy the cars that they make.

Up until now, I would argue, a lot of things other than trade and
globalization have been driving the erosion of the U.S. income distribution--the
Federal Reserve's 1979-1993 war on wage increases, the Reagan NLRB's legitimation
of new advanced forms of union busting, the collapse of the "union
threat" as a serious constraint on non-union employers, the failure
of schools to keep up with requirements for white-collar jobs, falling public
investment, the Reagan attempt to tilt the distribution of income in favor
of the rich to try to rev up the engine of accumulation. I could go on and
on.

But that other things have been more important in the past does not mean
that international economic forces will not be the most important in the
future.

When will the hammer of factor price equalization across the international
economy come down on America's non-necktie (and perhaps on many strata of
the -necktie) wearing class? And what should governments and international
institutions be doing to keep the hammer of factor price equalization from
levelling downward, rather than levelling upward over the next two generations?